JOHANNESBURG (miningweekly.com) – South African gold-miner Harmony Gold may become a takeover target on the back of the outstanding exploration results seen at the Wafi-Golpu deposit in Papua New Guinea (PNG), RBC Capital Markets said in a report on Thursday.
Analysts Leon Esterhuizen and Arnold van Graan said the PNG assets could add up to $2-billion to the value of Harmony, which was some 40% of the current market cap of the company.
Shares in the JSE-listed gold miner surged nearly 12% to R98,40 a share after the RBC takeover comment.
Harmony corporate and investor relations executive Marian van der Walt told Mining Weekly Online the company does not comment on speculation, but added that there was no corporate action that it was aware of.
Esterhuizen and Van Graan stated that another gold major could be looking at a strategy of making a bid for Harmony with the aim of stripping out the PNG assets and relisting the rump as a separate vehicle.
Gold Fields, AngloGold Ashanti and Newcrest were cited as possible buyers.
“In a couple of months, Harmony is poised to start delivering on a significant promise. We believe this is its most vulnerable moment and potential bidders know this. As a result, we recommend buying the story now – delivery also appears to have much better potential to succeed now,” the report stated.
The analysts increased their target price to R130 a share from R90 a share and raised their recommendation to outperform, from sector perform, while maintaining an above average risk rating.
The report pointed out that both Harmony and Gold Fields have for some time been bandying about the idea of assets potentially being listed separately and Harmony even acknowledged that it was actively pursuing the idea of listing Evander as a separate business, but opted against it.
At the same time, Gold Fields’ exposure to the Free State gold field was limited to one mine, surrounded by Harmony property. The report pointed out that South African companies were trying to expand offshore, as it offered many opportunities to build lower cost mines, and to “escape” the political risk discount associated with operating in South Africa.
The analysts believed that Gold Fields could make a bid for Harmony and then spin off some combination of the combined South African asset base into a separately listed vehicle.
“With Gold Fields also looking to expand the Australian base into a broader Australaisian exposure, we believe that the addition of the Harmony PNG land package would seem to make equally good sense.”
Meanwhile, AngloGold was also mentioned as a possible bidder, as CEO Mark Cutifani was recently quoted as saying that AngloGold could consider splitting off the South African assets into a separately listed vehicle.
“If AngloGold did make a bid, it could purchase Harmony at the point of most vulnerability, before the PNG results started showing, and essentially would be getting it for a bargain. It would likely also be picking up a much better international rating in the process.”
Australia’s largest gold-miner Newcrest could do exactly the same. The report pointed out that, as the joint-venture partner to Harmony on Hidden Valley and Wafi-Golpu, a bid from Newcrast would make sense. The rump could be relisted following the example set by Barrick Gold with African Barrick Gold recently.
RBC reported that Harmony could also unlock its own value by deciding to list a separate international vehicle.
“Such a move would likely cause an immediate and sharp increase in the Harmony share price but would inevitably leave the new international vehicle very vulnerable to a takeout and would undoubtedly lead to a discounted valuation on the remainder of Harmony.”
However, the analysts believed that far more value than the simple sum of the parts could be created by allowing the needs of AngloGold or Gold Fields and Harmony to be met simultaneously through a merger of the two companies and a subsequent or simultaneous relisting of separate vehicles.
This would be beneficial to the good South African plays, the marginal plays and even possibly a uranium arm on account of Harmony owning 40% of Rand Uranium, and AngloGold itself being the largest producer of uranium in South Africa at present.
“In Wafi-Golpu, Harmony is sitting on a ‘get out of jail free’ card and we believe this will be played – one way or another.”